Let’s take a look at 3 recent transactions and valuations in SaaS around $1.5 billion – $2 billion:
- Coupa acquired Llamasoft for $1.5 billion, 18 years after founding, at $100m ARR.
- Adobe acquires Workfront for $1.5 billion, 19 years after founding, at $200m ARR. and
- Hopin raises $175m at a $2 billion valuation, less than 12 months after founding, at “just” $20m ARR.
Whoa. What’s going on?
It’s pretty simple. The “growth premium” in SaaS has never been higher. Slow growth like Workfront, even at $200m ARR, is “only” worth 7x ARR. A strategic acquisition like Llamasoft is worth 15x. And as we’ll see below, those prices might actually be pretty high, because acquisitions often come at a premium. Both might be worth less on the public markets.
And Hopin, a digital events company that hit $20m in its first year? It’s worth 100x ARR.
This is a pretty big leap from the old days, when basically every hot company was worth 10x ARR in the private markets, and everything else was sort of worth nothing.
The Growth Premium:
$100m+ ARR: 30%+ Growth
$50m ARR: 60%+ Growth
$10m ARR: 100%+ Growth
$2m ARR: 200%+ Growth
Do even better YoY, valuations can be insane
Do worse though, and valuations plummet. Plummet.
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) December 16, 2020
But fast forward to today, and there have been dozens of SaaS and Cloud IPOs, and the top ones trade at very high “revenue multiples”.
The average multiple of revenue in the BVP Nasdaq Index of public SaaS and Cloud companies is 15x next year’s revenue:
But averages are misleading. Let’s look at the slower growth SaaS companies in the index, like Box, Zuora, Dropbox, and Domo. Great companies, all of them. Iconic SaaS companies. But they are still trading at just 3x-5x next year’s revenue. That’s … low. Real low. And much lower than you think you are probably worth:
In fact, the slowest growing 20 public SaaS companies in the index only trade for 4.9x next year’s revenues on average. While outliers like Zoom and Datago trade for almost 40x. That’s almost a 10x premium for hyper growth in the public markets.
So we’re a long way from the days where every hot SaaS company was somehow worth 10x this year’s revenue. Instead, the top ones are worth 40x next year’s revenue, or more. But the slower growth leaders, even at $100m-$500m+ in ARR, are perhaps only worth 3x-4x next year’s revenue. And the weak? They may be worth nothing at all.
If you can grow faster, it’s more worth it than ever in SaaS and Cloud. And if you hit a slow patch, assume for now, you probably are unfundable in most cases. Yes, there’s a huge premium for hyper-growth today. But there’s also no interest in VCs for the types of multiples even Dropbox has.
@johnnyboufarhat is doing everything differently.
$1T spend on events annually? Let's replace all it with software.
Hiring post-seed? Let's hire 300, remotely, across 40+ countries.
2x or 3x revenue growth this year? Let's shoot for 20x, in <3 quarters, from a standing start.
— Alex Lim (@alexlimbo_) November 10, 2020